2014 (11) TMI 1010 - AT - Income Tax

Validity of assessment u/s 153C - Held that - Recording of satisfaction by A.O. of searched persons is a necessary pre condition for initiation of proceedings u/s 153C which has not been done in the present appeals. Therefore, we quash the assessment proceedings being illegal. - Decided in favour of assessee.

Issues Involved:
1. Legality and jurisdiction of the initiation of proceedings under Section 153C.
2. Requirement and recording of satisfaction note by the Assessing Officer (A.O.) of the searched person.
3. The validity of assessment proceedings and orders under Section 153C.

Detailed Analysis:

1. Legality and Jurisdiction of the Initiation of Proceedings under Section 153C:

At the outset, the legal ground raised by the assessee pertained to the initiation of proceedings under Section 153C, contending that it was bad in law and without jurisdiction. The assessee argued that no satisfaction note relating to other entities was available in the files of the searched persons, which is a prerequisite for initiating action under Section 153C. The assessee referenced the judgments in DSL Properties Pvt. Ltd. and Pepsi Foods Pvt. Ltd. vs. ACIT, which held that the recording of satisfaction by the A.O. of the searched person is mandatory before taking action under Section 153C.

2. Requirement and Recording of Satisfaction Note by the A.O. of the Searched Person:

The assessee argued that the A.O. of the searched person must first record satisfaction that some documents belong to other persons and then hand over the same to the A.O. of such other persons, who will again record his satisfaction. The Ld. D.R. countered that there was no need to record a separate satisfaction note and that satisfaction could be inferred from the records or order. The Ld. D.R. also submitted that technicalities should not obstruct justice and referenced the case of State Bank of Patiala vs. S.K. Sharma. However, the Ld. A.R. reiterated that the satisfaction note produced by the Ld. D.R. related to the satisfaction note recorded by the A.O. of the other person, not the searched person.

3. The Validity of Assessment Proceedings and Orders under Section 153C:

The Tribunal examined the material on record and found that the satisfaction note was not recorded by the A.O. of the searched person. The Tribunal referenced the judgment in Pepsi Foods P. Ltd. vs. ACIT, which emphasized that the A.O. of the searched person must arrive at a clear satisfaction that a document seized from him belongs to another person before taking action under Section 153C. The Tribunal also referenced the judgment in DSL Properties (P) Ltd., which held that even if the A.O. of the searched person and the other person is the same, separate satisfactions must be recorded. The Tribunal observed that the satisfaction note dated 10.09.2010 was prepared by the A.O. of the other persons, not the searched person, and therefore did not satisfy the condition of assuming jurisdiction under Section 153C.

Conclusion:

The Tribunal concluded that the recording of satisfaction by the A.O. of the searched person is a necessary precondition for initiating proceedings under Section 153C, which was not done in the present cases. Consequently, the assessment proceedings were quashed as illegal. The Tribunal allowed the first ground of cross objections and dismissed the other grounds and the revenue's appeals as infructuous.

Order pronounced in the open court on 28-11-2014.

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